pball_8k-ex10x3.htm


    Exhibit
10.3

    


    THIS
WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF OR IN ACCORDANCE WITH
APPLICABLE LAW.

    WARRANT
TO PURCHASE STOCK

     

    
      
      

    

    
      	
              Corporation:

              
                
                  Number
      of Shares:

                  Class
      of Stock:

                  Initial
      Exercise Price:

                  Issue
      Date:

                  Expiration
      Date:

                

              

               

            	
              
                
                  PEPPERBALL
      TECHNOLOGIES, INC., a Colorado corporation

                  $150,000/Warrant
      Price

                  Common

                  See
      below

                  December
      10, 2009

                  December
      10, 2016

                

              

            


    

    
       

    

    THIS
WARRANT CERTIFIES THAT, in consideration of the payment of $1.00 and for other
good and valuable consideration, AGILITY CAPITAL, LLC or registered assignee
(“Holder”) is entitled to purchase the number of fully paid and nonassessable
shares (the “Shares”) of Common Stock of PEPPERBALL TECHNOLOGIES, INC. (the
“Company”), in the number, at the price, and for the term specified
above.  The exercise price per share (the “Warrant Price”) is equal to
the lowest of (i) $0.10 or (ii) the price at which the Company sells or issues
its Common Stock after the Issue Date in a transaction or series of transactions
in which the Company or any of its subsidiaries receives at least
$500,000.  This Warrant and the Warrant Shares shall not be subject to
any agreements entered into between the Company and any person or entity that
has the effect of reducing the number of Shares that Holder may acquire
hereunder.

     

    ARTICLE
1. 
EXERCISE

     

    1.1  Method of
Exercise.  Holder may exercise this Warrant by delivering this
Warrant and a duly executed Notice of Exercise in substantially the form
attached as Appendix 1 to the principal office of the
Company.  Unless Holder is exercising the conversion right set forth
in Section 1.2, Holder shall also deliver to the Company a check for the
aggregate Warrant Price for the Shares being purchased.

     

    1.2  Conversion
Right.  In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or
in part, into a number of Shares determined by dividing (a) the aggregate
fair market value of the Shares or other securities otherwise issuable upon
exercise of this Warrant minus the aggregate Warrant Price of such Shares by
(b) the fair market value of one Share.  The fair market value of
the Shares shall be determined pursuant to Section 1.3.

     

    1.3  Fair Market
Value.  If the Shares are traded regularly in a public market,
the fair market value of the Shares shall be the closing price of the Shares (or
the closing price of the Company’s stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company.  If the Shares are not regularly traded in a
public market, the Board of Directors of the Company shall determine fair market
value in its reasonable good faith judgment.  The foregoing
notwithstanding, if Holder advises the Board of Directors in writing that Holder
disagrees with such determination, then the Company and Holder shall promptly
agree upon a reputable investment banking firm to undertake such
valuation.  If the valuation of such investment banking firm is
greater than that determined by the Board of Directors, then all fees and
expenses of such investment banking firm shall be paid by the
Company.  In all other circumstances, such fees and expenses shall be
paid by Holder.

     

    1.4  Delivery of Certificate and
New Warrant.  Promptly after Holder exercises or converts this
Warrant, the Company shall deliver to Holder certificates for the Shares
acquired and, if this Warrant has not been fully exercised or converted and has
not expired, a new Warrant representing the Shares not so acquired.

     

    1.5  Replacement of
Warrants.  On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant and,
in the case of loss, theft or destruction, on delivery of an indemnity agreement
reasonably satisfactory in form and amount to the Company or, in the case of
mutilation, or surrender and cancellation of this Warrant, the Company at its
expense shall execute and deliver, in lieu of this Warrant, a new warrant of
like tenor.

     

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ARTICLE
2. 
ADJUSTMENTS TO THE
SHARES.

     

    2.1  Stock Dividends, Splits,
Etc.  If the Company declares or pays a dividend on its common
stock payable in common stock, or other securities, subdivides the outstanding
common stock into a greater amount of common stock, then upon exercise of this
Warrant, for each Share acquired, Holder shall receive, without cost to Holder,
the total number and kind of securities to which Holder would have been entitled
had Holder owned the Shares of record as of the date the dividend or subdivision
occurred.

     

    2.2  Reclassification, Exchange
or Substitution.  Upon any reclassification, exchange,
substitution, or other event that results in a change of the number and/or class
of the securities issuable upon exercise or conversion of this Warrant, Holder
shall be entitled to receive, upon exercise or conversion of this Warrant, the
number and kind of securities and property that Holder would have received for
the Shares if this Warrant had been exercised immediately before such
reclassification, exchange, substitution, or other event.  Such an
event shall include any automatic conversion of the outstanding or issuable
securities of the Company of the same class or series as the Shares to common
stock pursuant to the terms of the Company’s Certificate of Incorporation upon
the closing of a registered public offering of the Company’s common
stock.  Upon the closing of any sale, license, or other disposition of
all or substantially all of the assets (including intellectual property) of the
Company, or any reorganization, consolidation, or merger of the Company where
the holders of the Company’s securities before the transaction beneficially own
less than 50% of the outstanding voting securities of the surviving entity after
the transaction, the successor entity shall assume the obligations of this
Warrant, and this Warrant thereafter shall be exercisable for the same
securities, cash, and property as would be payable for the Shares issuable upon
exercise of the unexercised portion of this Warrant as if such Shares were
outstanding on the record date for the Acquisition and subsequent
closing.  The Warrant Price shall be adjusted
accordingly.  The Company or its successor shall promptly issue to
Holder a new Warrant for such new securities or other property.  The
new Warrant shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Article 2
including, without limitation, adjustments to the Warrant Price and to the
number of securities or property issuable upon exercise of the new
Warrant.  The provisions of this Section 2.2 shall similarly
apply to successive reclassifications, exchanges, substitutions, or other
events.

     

    2.3  Adjustments for
Combinations, Etc.  If the outstanding Shares are combined or
consolidated, by reclassification or otherwise, into a lesser number of shares,
the Warrant Price shall be proportionately increased.

     

    2.4  Weighted Average
Adjustment.  If the Company issues additional common shares
(including shares of common stock ultimately issuable upon conversion of a
security convertible into common stock) after the date of the Warrant and the
consideration per additional common share is less than the Warrant Price in
effect immediately before such issue shall be reduced, concurrently with such
Issue, to a price determined by multiplying the Warrant Price by a
fraction:

     

    (a)  the
numerator of which is the amount of common stock outstanding immediately before
such Issue plus the amount of common stock that the aggregate consideration
received by the Company for the additional common shares would purchase at the
Warrant Price in effect immediately before such Issue, and

     

    (b)  the
denominator of which is the amount of common stock outstanding immediately
before such issue plus the number of such additional common shares.

     

    Upon each
adjustment of the Warrant Price, the number of Shares issuable upon exercise of
the Warrant shall be increased to equal the quotient obtained by dividing
(a) the product resulting from multiplying (i) the number of Shares
issuable upon exercise of the Warrant and (ii) the Warrant Price, in each
case as in effect immediately before such adjustment, by (b) the adjusted
Warrant Price.

     

     

     

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    2.5  No
Impairment.  The Company shall not, by amendment of its
Certificate of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out all the provisions of
this Article 2 and in taking all such action as may be necessary or
appropriate to protect Holder’s rights under this Article against
impairment.  If the Company takes any action affecting the Shares or
its common stock other than as described above that adversely affects Holder’s
rights under this Warrant, the Warrant Price shall be adjusted downward and the
number of Shares issuable upon exercise of this Warrant shall be adjusted upward
in such a manner that the aggregate Warrant Price of this Warrant is
unchanged.

     

    2.6  Certificate as to
Adjustments.  Upon each adjustment of the Warrant Price, the
Company at its expense shall promptly compute such adjustment, and furnish
Holder with a certificate of its Chief Financial Officer setting forth such
adjustment and the facts upon which such adjustment is based.  The
Company shall, upon written request, furnish Holder a certificate setting forth
the Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.

     

    2.7           Event of Default
Adjustments.  Upon the occurrence of an Event of Default under
the Loan Agreement, Lender may acquire an additional 50,000 Shares of Borrower
for the first 30 day period the Default remains uncured and an additional 75,000
Shares of Borrower for each subsequent 30 day period the Default remains
uncured.

     

    ARTICLE
3. 
REPRESENTATIONS AND
COVENANTS OF THE COMPANY.

     

    3.1  Representations and
Warranties.  The Company hereby represents and warrants to the
Holder as follows:

     

    (a)  The
initial Warrant Price referenced on the first page of this Warrant is not
greater than the fair market value of the Shares as of the date of this
Warrant.

     

    (b)  All
Shares that may be issued upon the exercise of the purchase right represented by
this Warrant, shall, upon issuance, be duly authorized, validly issued, fully
paid and nonassessable, and free of any liens and encumbrances except for
restrictions on transfer provided for herein or under applicable federal and
state securities laws.

     

    (c)  The
capitalization table attached hereto correctly sets forth the authorized, issued
and outstanding shares of capital stock of the Company and all options to
acquire any such shares.

     

    3.2  Notice of Certain
Events.  If the Company proposes at any time (a) to
declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (c) to effect any reclassification or recapitalization of
common stock; (d) to merge or consolidate with or into any other
corporation, or sell, lease, license, or convey all or substantially all of its
assets, or to liquidate, dissolve or wind up; or (e) offer holders of
registration rights the opportunity to participate in an underwritten public
offering of the company’s securities for cash, then, in connection with each
such event, the Company shall give Holder (1) at least 20 days prior
written notice of the date on which a record will be taken for such dividend,
distribution, or subscription rights (and specifying the date on which the
holders of common stock will be entitled thereto) or for determining rights to
vote, if any, in respect of the matters referred to in (a) and (b) above;
(2) in the case of the matters referred to in (c) and (d) above at least
20 days prior written notice of the date when the same will take place (and
specifying the date on which the holders of common stock will be entitled to
exchange their common stock for securities or other property deliverable upon
the occurrence of such event); and (3) in the case of the matter referred
to in (e) above, the same notice as is given to the holders of such registration
rights.

     

    3.3  Registration
Rights.  Holder shall have the same rights to register the
common stock as provided to other holders of registration rights in that certain
First Amended and Restated Registration Rights Agreement dated March 11, 2002
between Jaycor Tactical Systems, Inc. and Jaycor, Inc., attached as Appendix
2..

     

     

     

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    3.4  Information
Rights.  So long as the Holder holds this Warrant and/or any of
the Shares, the Company shall deliver to the Holder (a) within ninety (90) days
after the end of each fiscal year of the Company, the annual audited financial
statements of the Company certified by independent public accountants of
recognized standing and (b) within forty-five (45) days after the end of
each of the first three quarters of each fiscal year, the Company’s quarterly,
unaudited financial statements.

     

    ARTICLE
4. 
MISCELLANEOUS.

     

    4.1  Term.  This
Warrant is exercisable, in whole or in part, at any time and from time to time
on or before the Expiration Date set forth above.

     

    4.2  Legends.  This
Warrant and the Shares (and the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) shall be imprinted with a legend in
substantially the following form:

     

    THIS
SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR IN ACCORDANCE WITH APPLICABLE
LAW.

     

    4.3  Compliance with Securities
Laws on Transfer.  This Warrant and the Shares issuable upon
exercise this Warrant (and the securities issuable, directly or indirectly, upon
conversion of the Shares, if any) may not be transferred or assigned in whole or
in part without compliance with applicable federal and state securities laws by
the transferor and the transferee.

     

    4.4  Transfer
Procedure.  Subject to the provisions of Section 4.3,
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder, if applicable),
provided that no such notice shall be required for a transfer to an affiliate of
Holder.

     

    4.5  Notices.  All
notices and other communications from the Company to the Holder, or vice versa,
shall be deemed delivered and effective when given personally or mailed by
first-class registered or certified mail, postage prepaid, at such address as
may have been furnished to the Company or the Holder, as the case may be, in
writing by the Company or such Holder from time to time.

     

    4.6  Waiver.  This
Warrant and any term hereof may be changed, waived, discharged or terminated
only by an instrument in writing signed by the party against which enforcement
of such change, waiver, discharge or termination is sought.

     

    4.7  Attorneys’
Fees.  In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys’ fees.

     

     

     

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    4.8  Governing
Law.  This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.

     

     

     

    
      	 
      	 
      	
              PEPPERBALL
      TECHNOLOGIES–CA, INC.

            	 
	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
	 
      	 
      	
              By:
      /s/ Christin Lewis

            	 
	 
      	 
      	 
      	 
	 
      	 
      	
              Name:
      Christin Lewis

            	 
	 
      	 
      	 
      	 
	 
      	 
      	
              Title:
      Asst Secretary

            	 
	 
      	 
      	 
      	 


    

     

     

     

     

     

     

     

     

     

     

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    APPENDIX
1

     

    NOTICE OF
EXERCISE

     

    1.           The
undersigned hereby elects to purchase ______________ shares of the Common Stock
of PEPPERBALL TECHNOLOGIES – CA, INC. pursuant to the terms of
the attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.

     

    1.           The
undersigned hereby elects to convert the attached Warrant into Shares in the
manner specified in the Warrant.  This conversion is exercised with
respect to ______________ of the Shares covered by the Warrant.

     

    [Strike
paragraph that does not apply.]

     

    2.           Please
issue a certificate or certificates representing said shares in the name of the
undersigned or in such other name as is specified below:

     

    Agility
Capital, LLC

    ____________________

    ____________________

    Or
Registered Assignee

     

    3.           The
undersigned represents it is acquiring the shares solely for its own account and
not as a nominee for any other party and not with a view toward the resale or
distribution thereof except in compliance with applicable securities
laws.

     

    
      	
              AGILITY
      CAPITAL, LLC or Registered Assignee

            	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
              (Signature)

            	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
              (Date)

            	 
      	 
      


    

    
 

     

     

     

     

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